Professional Documents
Culture Documents
Banker-Customer Relationship-Rsa
Banker-Customer Relationship-Rsa
SUMMARY
In the year 2015/16, some of the major South African banks such as
Standard Bank, terminated its bank-client contracts with its customers.
The customers argued that Standard bank issued no notice of termination
of these bank-client contracts. Alternatively, if the bank issued the notice of
termination, the period thereof was insufficient for the client to arrange for
an alternative baking option. As a result, the client argued that Standard
Bank unlawfully terminated the bank-client relationship. Consequently,
this paper examines this termination by considering, i) the nature of their
relationship, ii) the duties of both the bank and the client, iii) and iv) the
ways and circumstances which the bank-client contract may be terminated
in South African banking law.
1 Introduction
After the Guptas’ scandal,2 in 2015/16 the major South African banks
issued notices of termination of their contractual relationship with inter
alia Oakbay Investment (Pty) Ltd, Siva Uranium (Pty) Ltd, TNA Media
(Pty) Ltd. The termination of contract came as a result of these Gupta
owned companies being suspected and alleged of its directly or indirectly
3 Writer “Another Major SA Bank Closes its Doors to Gupta Company” https://
businesstech.co.za/news/finance/119245/another-major-sa-bank-closes-its-
doors-to-gupta-company/ (assessed 2018-04-06). Minister of Finance v
Oakbay Investments (Pty) Ltd; Oakbay Investments (Pty) Ltd v Director of the
Financial Intelligence Centre (80978/2016)[2017] ZAGPPHC 576; [2017] 4
All SA 150 (GP) (18 August 2017), par 12. Annex Distribution (Pty) Ltd v Bank
of Baroda (52590/2017) [2017] ZAGPPHC 608; 2018 (1) SA 562 (GP)
(21 September 2017).
4 In terms of s 1 of the Banks Act, a bank means a public company registered
as a bank in terms of the Act. Moreover, the purpose of this Act is to
“provide for the regulation and supervision of the business of public
companies taking deposits from the public and to provider for matters
connected therewith”.
5 Basel Committee on Banking Supervision Core principles for Effective
Banking Supervision Banking for International Settlements (The Basel Core
Principles) (2012) 1-79. This publications accessible at https://www.bis.org
(assessed 2018-09-19). (United Nations Convention against Illicit Traffic in
Narcotic Drugs and Psychotropic Substances, 1998; United Nations
Convention against Transnational Organised Crime, 2000. The primary
regulator of the Reserve Bank of India; Financial Action Task Force (FATF)
available at https://www.fic.gov.za/DownloadContent/NEWS/PRESSRE
LEASE/FIC%20Annual%20Report&202012-13.pdf (assessed 2018-09-19);
Politically Exposed Person (PEP); Banks Act 94 of 1990; See article 68(1) of
the United Nations Convention against Corruption Resolution 58/4 of
October 31, 2003 and the Money Laundering and Terrorist Financing
Control Regulations.
56 2020 De Jure Law Journal
3 2 Client’s duties
The bank’s client also has corresponding duties toward the bank. The
client has a duty to:
(a) Exercise care when drawing cheques.26
(b) Disclose any forgeries.27
(c) Demand for the repayment of deposited money.28
(d) Pay bank charges accordingly and “interest on loans or overdrafts”.29
(e) Inform the bank of any apprehensive dealings or fraudulent attempts on
his\her account.30
The above-listed obligations of the bank and its client are not exhaustive
but vary depending on the contract between the parties.
The above two sections have considered the nature of the BC
relationship and the duties of both the bank and its clients. In what
follows, a discussion on the termination of the BC relationship is
considered and whether the bank can unilaterally cancel banking
contracts unilaterally.
4 Termination of BC relationship
The BC relationship may be terminated in many ways. These include but
are not limited to notice by the bank, mental disorder of the client,
insolvency of the client or by mutual agreement.31 It is noteworthy that
in practice, it is nearly always the one party or the other wishes to end
the relationship, as such, the BC relationship is terminated unilaterally as
will be discussed below. The question arises is whether the bank is
obliged to provide a reasonable notice to its client before it unilaterally
closes the client’s bank account.
41 Case law
4 1 1 Breedenkamp v Standard Bank of South Africa
(Breddenkamp I):32 The interim interdict application
In casu, the United States government listed the applicant
(Breedenkamp), Breco (the company) and other certain entities as
26 Hapgood 149-150.
27 Joachimson v Swiss Bank Corp supra, 127.
28 Joachimson v Swiss Bank Corp supra, para 17.
29 Olanrewaju.
30 London Joint Stock Bank v Macmillan and Arthur [1918] AC 777 HL;
Greenwoods v Martins Bank [1933] AC 51 HL. Olanrewaju. See also Brown v
National Westminster Bank Ltd (1964) 2 Lloyd’s Rep. 182.
31 Smart & Chorley 362, 364, 366, 377. Hapgood 153 para 7.13. The author
indicates that the relationship between the banker and its client may be
terminated by an agreement between parties, by unilaterally act by either
party or by the death of the client.
32 Breedenkamp v Standard Bank of South Africa 2009 5 SA 304 (GSJ).
60 2020 De Jure Law Journal
parties may arrange their affairs and conclude contracts that will be
binding between themselves, the pacta sunt servanda principle. This
entails that unless the contrary is proven, parties are bound by the
general terms and conditions of their contract.
It was accepted that Standard Bank SA termination of the contract did
not directly violate the applicant’s right to freedom of contract, dignity or
trade.56 However, the applicant further submitted that should the court
find that the cancellation had not directly infringed his constitutional
values; the court ought to consider that the termination violated the
fairness principle. In this regard, the applicant relied on the fairness
principle in that, Standard Bank SA unfairly exercised its right of
termination taking into account that the applicant had no sufficient time
to move his business to another bank. Furthermore, other banks were
not prepared to accept him and therefore it was fair to sustain his
relationship with Standard Bank SA. Subsequently, the applicant sought
the following reliefs. One, that the bank is prohibited from cancelling the
contract without good cause.57 Two that the bank is “interdicted and
restrained from cancelling the account contract unless and until good
cause arises.”58 The applicant’s contention was that prior to the
conclusion of the contract, Standard Bank SA was in a “privileged
position” to impose standard-term clauses in the contract.59 According
to the applicant, this might have constituted an unequal bargaining
position between the parties and it probably influenced the voluntariness
of the applicant to enter into the contract regarding the bank account.
Lamont J held that the unequal bargaining power prior to the conclusion
of the BC contract did not on its own render the contract unenforceable.
According to the court, this might however have had a bearing on the
weight that would be attached to the terms of the contract and the extent
to which the parties were able to act with dignity and freedom.60
Moreover, the applicant argued that the BC contract contained a
variation clause entitled the bank to change the terms and conditions
from time to time. Subsequently, this empowered the bank to amend the
terms from time to time. It can be argued that this seems to perpetuate
the unequal bargaining power in that the client has no choice but to
contract with the banker because of the need of the client’s vulnerable
position for banking facilities. If the applicant was not satisfied with the
terms of the BC contract or their amendments, he had two options at his
disposal. First, the applicant could have negotiated with the bank on
different terms.61 Second, the applicant would be able to terminate the
account contract himself.62 The applicant further argued that the
imbalance was further perpetuated by the strict requirements that the he
had to comply with. Furthermore, the South African banking sector has
a limited number of banks.63 For these reasons, the applicant contended
that Standard Bank SA was in indeed in a privileged position. The court
accepted that banks do impose standard form contracts, but the
evidence before the court did not prove that this constituted an
aggravating factor in the present matter.64 It seems that the court was
prepared to accept that the parties were not on equal bargaining position
provided evidence could support such conclusion. It is submitted that in
the banking sector such as South Africa’s one with few major banks, it
seems difficult to justify that the parties would be on equal footing. This
is because amongst other reasons, BC contracts tend to contain standard
clauses that cannot easily be changed unless the banker grants such
permission. The court continued to consider the applicant’s contention
and it held that the applicant was a strong entity that would have
influenced Standard bank SA in one way or another. To put it differently,
the applicant was “no shrinking lily”.65 Accordingly, the court concluded
that the facts did not show that the applicant “was at a bargaining
disadvantage or in a position of inequality” vis-à-vis the bank66 It seems
likely that the court would reached a different conclusion had the facts
proven that the bank was in a more favourable position. In other words,
the court would have granted the interdict stopping the bank from
cancelling the BC relationship if the facts proved otherwise.
The applicant also submitted that it was fair for Standard Bank SA to
have the applicant as its client because other banks were not willing to
do business with him.67 The court accepted that the unbanked position
of the applicant impaired his dignity, integrity and respect to carry on
trade as a respectable member of society.68 However, the court further
examined the submission and concluded that the applicant had to prove
that the cancellation by Standard Bank SA rendered him unbanked.69
According to the court, the applicant had failed to discharge such onus.
In other words, the applicant had failed to establish that other banks
could not take him on as a client because of the unilateral cancellation by
Standard Bank SA.
The court further held that fairness principle also entailed the bank’s
right to choose which person it wanted to contract with.70 Moreover, the
bank had a duty to comply with and uphold banking regulations. As such,
the court ruled that the process was procedurally fair. Substantively there
was a proper rationale for the decision to terminate.71
The court further relied on the dictum of Ngcobo J in the Mohlomi case
that parties in a contract have self-autonomy or the ability to regulate
their own affairs.76 Accordingly, the question of enforceability comes
into play only if it can be shown that the terms of the contract are
unreasonable. Hence, it meant that it would be objectively or subjectively
impossible to enforce them. According to the court, since the contractual
terms were valid, it was unnecessary for the cancellation process to be
fair and reasonable as perceived by the appellant. Consequently, the
appellant could not solely rely on fairness as a freestanding requirement
to sustain the bank-client relationship.77
The court opined that the issue to be decided was whether Standard
Bank SA had complied with the termination requirements as agreed in
the BC contract. Harms DP considered that in terms of the general terms
and conditions the bank first had to issue a reasonable notice if it sought
to terminate the contract. Second, it must have had a good cause for the
termination of the contract. On the reasonable notice requirement, it was
undisputed that the bank had given the appellant a reasonable notice to
cease the bank-customer relationship. Based on the good cause
requirement, the court held that the bank had exercised its right of
cancellation lawfully as permitted by the BC contract. In other words, the
bank was at liberty to terminate its contract emanating from the
agreement between the parties. More so, the bank made its decision to
cancel the banking contract based on the listing of the appellant and
considered the reputational and business risk related thereto. The court
85 Schulze “The Bank’s Right to Cancel the Contract Between it and its
Customer Unilaterally” (2011) 32 Obiter 219.
86 National Commercial Bank of Jamaica Ltd v Olint Corporation Ltd [2009]
UKPC 16.
87 The Code of Banking Practice (2012) para 7.3.2. Available at http://
www.banking.org.za/consumer-information/legislation/code-of-banking-
practice (assessed on 2018-09-19).
88 Du Toit “Closing Bank Accounts: Recent Developments” in Hugo and
Du Toit et al, Annual Banking Law Update: Recent Developments of Special
Interest to Banks (2017) 31-42 32, footnote 10.
89 Ellinger and Lomnicka 208.
90 [1923] 39 TLR 372.
91 Ellinger and Lomnicka 209.
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intention to close the account. These include but are not limited to the
following:96
(a) if a banker is obeying a court order;
(b) if a client has acted unlawfully;
(c) if the client has breached the bank’s terms and conditions;
(d) if the client has acted abusively towards bank staff.
7 Conclusion
In the above discussion, I have shown that both the banker and its client
have rights and obligations in terms of their banking contract. It has also
been illustrated that the BC relationship may end in several ways for
different reasons. However, the point of departure to determine the
validity of the termination of this contract should be the terms and
conditions that the parties have agreed to.
It has further been explained that the banker may unilaterally
terminate its banking facilities subject to reasonable notice to the client.
Subjectively speaking, whether such reasons are wrong or not is
irrelevant, except if there is an abuse of the right of termination. Although
either party may cancel the banking contract, it is, however, instructive
to note that the facts and circumstances of each case will determine the
manner and means of termination of the contract in question.
Imperatively, it is further submitted that once the banker has decided
to close the client's bank account it is unlikely that the court would make
a mandatory order to reopen the account. It seems that the most
appropriate relief the client has is to claim damages he\she suffered if
he\she can prove that the bank did not give a reasonable notice of
termination, or that the closure in itself was unreasonable.97
Finally, it should also be mentioned that the bank does not only owe
the duty to its clients. The international banking community also requires
the bank to uphold and protect the banking sector, the standard as well
as the dignity thereof. Therefore, it is submitted that where the interests
of the individual conflicts with the banking industry regulations and
standard practice, it is likely that the protection of the banking sector will
prevail.
96 Du Toit 32.
97 Annex Distribution (Pty) Ltd v Bank of Baroda par 14; Joachimson v Swiss
Bank Corp supra, 110.